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Oi completes Latin America’s largest restructuring

Brazilian telecommunications company Oi has finally completed the largest private sector restructuring in Latin American history, after years of legal battles in several jurisdictions.

The largest fixed-line telecommunications company in Brazil, Oi issued over 3 billion new shares in a 4 billion reais (US$1 billion) rights offering on 28 January, the last major step in its US$20 billion restructuring plan. A number of international asset managers and banks backstopped the rights offering.

In addition to requiring the share issue, the plan handed over 75% of the company to bondholders in a debt-for-equity swap. It also reformed Oi’s governance and operating structure, while restructuring all of its bank debt and some claims owed to Brazilian telecommunications regulator Anatel.

The final step of the restructuring came less than three weeks after Oi reached a €25 million settlement with 27.5% shareholder Bratel, a subsidiary of Portuguese telecommunications company Pharol, ending three years of litigation. Pharol had argued that Oi’s plan violated shareholders’ rights, had not received shareholder consent, and was the product of collusion between Oi’s bondholders and directors.

Barbosa Müssnich Aragão partner Sergio Savi inRio de Janeiro, counsel to Oi on its restructuring, tells GRR that settlement still requires approval from the Rio court overseeing Oi’s bankruptcy. He says Oi, Pharol and Bratel have filed motions to freeze all contentious proceedings for 60 days, or until the court approves the settlement if this occurs first.

Commenting on Oi’s share issue, Savi says it is “one of the most important steps of its restructuring”.

Cleary Gottlieb Steen & Hamilton, which was lead international counsel to an ad hoc group of Oi bondholders on the restructuring, described the share issue as “an important milestone for the company, as well as for Brazilian capital markets and Brazilian restructuring law.”

The law firm said Oi had completed its restructuring after enacting the “the final major stage in [Oi’s] judicial reorganization”, which has been “particularly complicated” because of its capital structure and business operations.

Cleary explained that “Oi was the first truly public Brazilian company that issued its bonds in the international markets to go through judicial restructuring since Brazil revised its insolvency laws in 2005.”

It said the company was heavily regulated and owed a substantial amount of debt to a large number of public and private banks, which added to the complexity because it meant there were so many interested stakeholders.

Legal challenges

Oi filed for judicial reorganisation in Rio in June 2016. It spent 18 months battling with creditors and Anatel, before obtaining creditor approval for its restructuring plan in December 2017, following a 15-hour meeting held in an Olympic sports venue that was attended by 1,000 people.

In July 2016, Oi obtained Chapter 15 recognition of the Brazilian bankruptcy from a New York court.

Meanwhile, two Dutch affiliates of Oi also entered suspension of payments proceedings in the Netherlands, and the Brazilian parent failed to prevent these from being converted into full bankruptcy proceedings in April 2017.

The Dutch insolvency administrator of one of the two entities, Jasper Berkenbosch of Jones Day, applied to the US court asking it to modify its July 2016 decision recognising the Brazilian proceedings and to recognise the Dutch proceedings instead. But Judge Sean Lane in the Southern District of New York bankruptcy court denied the application in December 2017, accusing one of Oi’s major creditors, Aurelius Capital Management, of “weaponising” the Chapter 15 process.

The New York court later approved Oi’s restructuring plan in June 2018 and gave it full force and effect it a month later, dismissing objections from shareholders who argued the court should wait for the resolution of legal challenges that had been launched since the plan’s approval in Brazil.

Those challenges included an arbitration commenced by Oi shareholders before Brazil’s Market Arbitration Centre, and conflict of jurisdiction proceedings before Brazil’s Superior Court of Justice where Oi sought to suspend the arbitration.

Bratel also sought to challenge the ratification of Oi’s restructuring plan at the Rio de Janiero Court of Appeals, and appealed a court decision that had allowed Oi’s CEO to negotiate the plan without board or shareholder approval.

Regardless of the challenges, and following the US court’s example, a Dutch court recognised the telecoms company’s Brazilian restructuring plan in June 2018. Finally, while a Portuguese court initially declined to recognise the restructuring plan in August because the matter was not closed, Oi overturned the decision on appeal in October.

Oi described the success of its appeal in Portugal as the last stumbling block towards recognition of the plan in all relevant jurisdictions.

The €25 million settlement, if approved, should bring an end to all litigation still pending in Brazil and in Portugal.